Confirmed yesterday and pending regulatory approval, T-Mobile and MetroPCS will merge to form one solid company with current T-Mobile CEO John Legere at the top of the new combined entity. The purchase has been evaluated at $1.5 billion. Technically a reverse merger, MetroPCS will acquire T-Mobile from Deutsche Telekom in exchange for DT’s majority stock ownership (74%) in MetroPCS, then rename the combined company to T-Mobile. In the end, T-Mobile will become a publicly traded company without the traditional Initial Public Offering (IPO) filings. It’s a confusing multi-step process which may not entirely make sense to everyone, but when you consider the history, it’s actually somewhat ingenious.
Since the AT&T and T-Mobile merger failed, it’s been no secret that Deutsche Telekom (T-Mobile’s parent company) has been looking for a way to exit the U.S. market to focus their assets on their European offerings. Since MetroPCS is a publicly traded entity, this might be the sly opportunity DT has been waiting for. Once the dust has settled, Deutsche Telekom will be free to sell their public shares in the new T-Mobile (formerly MetroPCS) to willing buyer(s) without the significant regulatory overhead encountered when they tried to sell T-Mobile to AT&T.
What does this mean for prepaid offerings? Well, two things:
1) MetroPCS is a popular prepaid provider in urban markets. Although MetroPCS’s coverage area isn’t very large, they provide a great value and a wide variety of no-contract plans to meet the demands of a wide set of customers, which is a strategy prepaid providers need to adopt to remain competitive. After the acquisition, it’s possible that T-Mobile will adopt a similar market strategy, and that’s a win for everybody.
2) In addition to the spectrum T-Mobile desires which will further accelerate their repositioning efforts, MetroPCS also has a limited LTE network. This will hopefully allow T-Mobile to accelerate their LTE plans. Although MetroPCS is a CDMA-based network (T-Mobile uses the more popular GSM standard), their LTE equipment may be used as a quick-to-market LTE solution while T-Mobile installs their newer LTE equipment across the country.
The single biggest question of this merger is how T-Mobile plans to integrate MetroPCS’s CDMA network with their own GSM network. The two technologies aren’t compatible, so the CDMA network will have to be phased out over time (estimated two and a half years), which will cause considerable inconveniences to existing MetroPCS’s current customers. T-Mobile has likely already considered this fact and we may expect to see several T-Mobile sales on cheaper phones to entice the MetroPCS customers to upgrade their devices sooner rather than later.
What are your thoughts on the proposed merger? Would you like to see T-Mobile adopt MetroPCS’s tiered prepaid offerings, or is this merger a flawed strategy from the start?